Monthly retail sales came in light for January, rising only 0.4% in total versus an expected 1% rise. Ex. autos, the rise was 0.7%, showing a significant drag from weak vehicle sales.
But, it's not time to throw in the towel on retail. The consumer isn't dead, despite our best efforts to pull the plug, according to Art Hogan, managing director at Lazard Capital Markets.
"Every year we try to find another reason to lay on the consumer's lap for why he isn't going to spend," says Hogan. As he sees it, the price of gas, consumer sentiment readings, and other confidence measures have nothing to do with how much people spending.
It's all about jobs! The ability to find and keep a job is what determines whether or not a person spends discretionary wealth. The recovery is still so small as to be nearly invisible but the reality is that the jobs data is improving. As employment inches back to more normal levels, Americans will spend.
Hogan has a few ways to capitalize on the recovering discretionary sector:
Starbucks (SBUX): Seattle's coffee king is at all-time highs as CEO Howard Schultz has led them back from the dark days of the late 2000's. Hogan says Starbucks' penetration of the grocery aisles is one reason to be positive on the name and having the aisle space comes with an added benefit. Starbucks has a 16% market share of K-cups, the individual serving cups most often associated with Green Mountain (GMCR).
Starbucks has been in the K-cup for "about 15 minutes." GMCR is a $10 billion market cap company. Starbucks is coming to get them; place your bets accordingly.
Signet Jewelers (SIG): This owner of brands Kay and Jared Jeweler is "actually gaining market share just by staying in the game," says Hogan, referring to competitors getting steamrolled by a combination of rising inputs and dropping sales over the last five years.
With the leveling off in input costs and savvy hedging, Signet is under-loved and under-owned at a $4 billion market cap company trading at 14x earnings.
Gap (GPS): The fickle finger of fashion may be once again pointing at the Gap, at least in Hogan's mind. The company is starting to take on a bit of the look former CEO Micky Drexler's J. Crew, which is a good thing. After well more than a decade of serving as a cautionary tale for investors playing specialty retail for the long term, it may at long last be time for Gap to make it back into the big leagues.
Speaking of fickle, Hogan isn't shy about ringing the bell for winners in the space. One of the names that's reached his price target is TJX Companies (TJX). The parent company of TJ Maxx is up 40% over the last 52-weeks, benefiting from picking through the clearance racks of stuggling fashion plays unable to clear their goods.
Hogan doesn't think TJX is on the cusp of collapse, just that the story has been well and truly told; always a good reason to take profits in the space.
What consumer story hasn't been told and how are you playing it? Let us know in the comment section below or drop me a Tweet @Jeffmacke
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